Bank of England policy maker Adam Posen made the strongest call yet for the bank to restart its asset-purchase program.

“Additional monetary stimulus at this point should begin in the form of additional QE as the Bank of England pursued by purchasing gilts in 2009-2010,” he said. “In case such QE were to prove insufficiently effective,” Posen said he would “still want preparation ahead of a Plan B of large-scale non-gilt asset purchases” in close coordination with the Treasury.

Posen, 43, an American citizen, joined the central bank from the Washington-based Peterson Institute for International Economics. A co-writer of a book on inflation targeting with Fed Chairman Ben S. Bernanke, he also published a study of the Japanese financial crisis and was a researcher at the Bundesbank and European Central Bank.

Wouldn´t surprise me if down the road even politicians will be more popular than members of the BOE & when the term "central banksters" will gain more and more traction....

…over the last 6 years (ie 2005Q1 to 2010 Q4), real GDP growth has undershot the MPC’s forecast made a year earlier in 22 quarters and overshot in just 2 quarters. Conversely, inflation has overshot the MPC’s forecast in 20 quarters and undershot in just 4 quarters.

Saturday, January 15, 2011

Excellent Interactive Map via The Economist : "US Equivalents: Which Countries Match The GDP And Population Of America´s States"

I think in the context of the ongoing & worsening budget crises the chart provides a good perspective when sooner or later the MUNI topic will dominate headlines... At the latest when they need another reason to justify "QE 3.0".... ;-)

US equivalents......Which countries match the GDP and population of America's states?

IT HAS long been true that California on its own would rank as one of the biggest economies of the world. These days, it would rank eighth, falling between Italy and Brazil on a nominal exchange-rate basis. But how do other American states compare with other countries? Taking the nearest equivalent country from 2009 data reveals some surprises. Who would have thought that, despite years of auto-industry hardship, the economy of Michigan is still the same size as Taiwan's?

To put Whitney comments into perspective i suggest to read the more balanced rebuttal from Self-Evident & Whitney Municipal-Bond Apocalypse Is Short on Default Specifics via Blommberg.... Personally i think it´s only a matter a time until a "Black Swan" arrives in the MUNI complex..... Like in Europe ( Greece & Ireland ) it will be interesting to see how the politicians will be able or willing to "balance" the pain among voters via austerity, tax hikes, cuts in entitlements etc. & bondholders via haircuts.... Either way this won´t be GDP & market positive.....

If 2011 is hinting at a national recovery, there is little sign of it in statehouses across the country.

States that already have raided their reserve funds, relied on borrowing or accounting gimmicks, and imposed deep cuts on schools, parks and public transit systems no longer can protect key services in the face of another round of multibillion dollar deficits.

For the week ended Wednesday, investors pulled more than $4 billion from muni funds, extending the outflow streak to ten consecutive weeks. The $4 billion pullout also represents the largest week of outflows during the run

Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout. Along with retirees, however, investors in a state’s bonds could suffer, possibly ending up at the back of the line as unsecured creditors.

The big loser in today’s data is the Municipal fund space which lost -$5.7 bln. This takes total outflows for January 2011 up to -$10.26 bln which is the greatest outflow since our data starts in 2007. Note that even at the height of the Lehman crisis outflows peaked at -$8.36 bln in October 2008.

The NYT reports that "President Obama is proposing to ride to the rescue of states that have borrowed billions of dollars from the federal government to continue paying unemployment benefits during the economic downturn. His plan would give the states a two-year breather before automatic tax increases would hit employers, and before states would have to start paying interest on the loans."

Michigan, for instance, owes the federal government $3.7 billion it borrowed to pay unemployment benefits. Under current law the state would be forced to pay $117 million in interest to the federal government this fall, and the federal tax on employers would automatically step up each year to repay the debt.

Most "comical " aspect is that, according to Paul Allen from Bloomberg News, the new owner of this "white elephant" is now the Beijing University .... ?!?!? Surprising that even the Bloomberg reporter shrugs this probably most interesting circumstance of.....

Over the last few years, hundreds of malls have popped up around China, which now claims seven of the world's 20 largest. Two of those, Oriental Plaza in Foshan and Grandview Mall in Guangzhou, are within 50 miles of South China Mall.

The index doesn't measure domestic retail prices, which can be affected by a wide range of factors, including government subsidies. Instead, the index tracks export prices and can still serve as a barometer of what consumers may pay.

The Rome-based organisation said the increase did not constitute a crisis. But Abdolreza Abbassian, senior economist at the FAO, acknowledged that the situation was “alarming”. He added: “It will be foolish to assume this is the peak.”

The jump will increase fears about the repetition of the crisis of 2007-2008. However, poor countries have not so far seen the wave of food riots that rocked countries such as Haiti and Bangladesh two years ago, when prices of agricultural commodities jumped.

The increase in food costs will also hit developed economies, with companies from McDonald's to Kraft raising retail prices.

Higher food prices are also boosting overall inflation, which is above the preferred targets of central banks in Europe.

Compare the food CPI problems of the ECB, BOE & FED with the rest of the world.....

Probably not an understatement that at least a "small" part of the increase is related to the wisdom of the central banksters around the world..... I´m very sceptical that without "QE" & with "credible" central bankers ( and politicians ) we would face similar headlines.....UPDATE: Speaking of "credible" people Ben Bernanke and the Price of Oil.....Wouldn´t surprise me if way too many on Wall Street & in the numerous "ivory towers" around the world are calling develompents like this "collataral damage"....

The FAO said its food price index, a basket tracking the wholesale cost of commodities such as wheat, corn, rice, oilseeds, dairy products, sugar and meats, jumped last month of 214.7 points – up almost 4.2 per cent from November.

The FAO is drawing comfort from relatively stable prices for rice, one of the two most important cereals for global food security, which remains far below its record high. Rice is the staple of 3bn people in Asia and Africa.

The FAO food index is at its highest since the measure was first calculated in 1990. During the 2007-08 food crisis, the index reached a peak of 213.5 in June 2008

However, the cost of the other critical staple, wheat, is now rising fast on the back of poor harvests.

“This is a high prices situation,” said Mr Abbassian, although he pointed to the fact the costs of cereals – and particularly rice – were below the peaks set in 2007-08.“Rice and wheat are, from a global food security perspective, the critical agricultural commodities, not sugar, oilseeds or meat,” he said.

The increasing costs of sugar, whose price recently hit a 30-year high, oilseeds and meat are the main reason behind the rise in the FAO food index

.

The rise of commodity prices makes it likely that the global food import bill will hit a record high in 2011

,after topping $1,000bn last year for only the second time. In November, the FAO raised its 2010 forecast to $1,026bn, up almost 15 per cent from 2009 and within a whisker of a record high of $1,031bn set in 2008 during the food crisis.

Agricultural commodities prices have surged following a series of crop failures caused by bad weather. The situation was aggravated when top producers such as Russia and Ukraine imposed export restrictions, prompting importers in the Middle East and North Africa to hoard supplies.

I think it´s a safe bet that around the world subsidies & government involvement ( food stamps, price controls, ban on exports etc ) will not "deflate".....

One uselful "involvement" would be to start with the derivatives complex... ;-)

Riots over rising food prices and chronic unemployment spiraled out from Algeria's capital on Thursday, with youths torching government buildings and shouting "Bring us Sugar

Wednesday's violence started after evening Muslim prayers. It came after price hikes for milk, sugar and flour in recent days, and amid simmering frustration that Algeria's abundant gas-and-oil resources have not translated into broader prosperity.

In the United States, which harvested 416 million tons of grain in 2009, 119 million tons went to ethanol distilleries to produce fuel for cars. That's enough to feed 350 million people for a year.... The combined effect of these three growing demands is stunning: a doubling in the annual growth in world grain consumption from an average of 21 million tons per year in 1990-2005 to 41 million tons per year in 2005-2010. Most of this huge jump is attributable to the orgy of investment in ethanol distilleries in the United States in 2006-2008.

The reasons behind the ugly scenes in Tunisia are down to a combination of political and economic factors, but at least part of the discontent stems from rising food and energy prices

The problem these countries face is that food and energy prices are a much bigger percentage of an emerging consumer's shopping basket than for a developed consumer's basket. Food and energy therefore carry a much higher weight in domestic consumer price indices within emerging markets, which is something I discussed last year when going over some of the risks to the emerging market story

To an extent, higher food and energy prices are a result of expansionary economic policy in the US combined with a reluctance of emerging market countries (particularly China) to allow their currencies to appreciate versus the US dollar. Would it not be ironic if the very policies that US authorities have pursued to return the US economy to growth then proceed to be the cause of global economic weakness?

The index has been created by Citigroup and its based on the idea that a country’s central banks are more likely to have to respond to a food price shock if:

1) the consumer price index is sensitive to changes in good prices.

2) growth is strong — the chances of contagion from food prices to core CPI are strongest when demand pressures are in any case robust.

3) Relatively loose monetary policy– on the groundsthat a country already behind-the-curve might have some nasty catching-up to do if a food price shock leads to a surge in inflationary pressures overall.

Russia has just announced it would proceed with price caps on a variety of foodstuffs, from buckwheat, to potatoes, assorted fruits and vegetables and all other commodities it deems "socially important" accoding to Russian newspaper gazeta.ru.